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Years ago, when I wrote a popular financial makeover feature for a major national newspaper, one of our subjects asked if he should be plowing his more than $50,000 in savings into gold. It was 1997 and gold was trading at a little more than $300 an ounce. The financial planner assisting with the piece laughed dismissively, and the question never made it into the final write-up. Well, my bad. As I write, gold is hovering around $900 an ounce. For more than two decades, as income inequality increased and job security decreased, Americans lapped up personal finance columns, books, and television shows. We thrilled to stock tips and swooned at sensible strategies for using dollar-cost averaging to invest in no-load index funds. Buy and hold, my friends! The annualized gain for the S&P 500 stock index over time is more than 10 percent! You, too, can turn into the millionaire next door. Carpe diem, folks! Seize the financial day!.
Euphoria managed to out-run swine flu last week as the epidemic-du-jour, with "consumer" confidence jumping and the big bank stocks nudging up. The H1N1 virus fizzled for now, at least in terms of kill ratio, though we're warned it might boomerang in the fall with a vengeance. No one was surprised to see Chrysler roll over like a possum on a county highway, but the memory of their muscle cars will linger on like a California surfing song. Here in the northeast, where Sundays are not spent at the Nascar oval, the spring foliage reached the tenderly explosive stage and it was hard to feel bad about anything.
“And, at this point, confidence is what it is all about… The first thing is to maintain some confidence in ourselves and the prospects for our country over time… Unfortunately, there is no lever marked ‘confidence’ that policy-makers can take hold of. Our task is very much one of seeking to behave, across the board, in ways that will foster, rather than erode, confidence. It is such confidence that, more than anything else, will help to drive us along the road to recovery.” (Glenn Stevens, April 21st 2009) “I fancy that over-confidence seldom does any great harm except when, as, and if, it beguiles its victims into debt.” (Irving Fisher, 1933)
With the recent fair-value lying accounting changes banks have reported surging quarterly profits. Even the single digit midget Bank of America booked a first quarter net income of $4.247 billion - 6% more than it made in all of 2008. Olivier Garret, CEO of Casey Research, asks a couple penetrating questions and gives a couple answers. “For starters, just where did all this income come from? And has credit quality really improved?
Last month, many banks reported strong earnings. Market sentiment has changed substantially. Only a few months ago, the collapse of the whole US banking industry threatened to bring the whole global economy down. Now, suddenly, the picture looks rosier than ever and this financial crisis seems to be over. Or is it? With very limited transparency of bank earnings, there are several so-called earnings areas investors should question whether they are sustainable, and a few other areas investors should ask whether they are even real. They are as follows:
There may not be any one answer, but the 800-pound gorillas in the room are: short-term managerial focus on profits, uncompetitive quality in terms of durability and cost of ownership, and the union's reluctance to adapt to changing circumstances. I find it hard to believe that the near-complete meltdown of the U.S.-owned auto industry has elicited such little commentary or reflection. Even though I expect blatant propaganda from our government and mass media, I am still surprised by the massive spin and general complacency over what is clearly a watershed collapse and a host of new precedents with unforseen consequences. It's as if America watches its U.S.-owned auto industry fall and then yawns, changing channels to something more "upbeat." The news is both Orwellian and Kafkaesque, coarsely propagandistic and twisted at the same time. Chrysler, we are told by our president, will emerge stronger, better, more wonderful than ever, etc. Really? Based on what? Sadly, the company has almost no new models in the works, and has partnered up with another failed auto company in Europe which is essentially propped up by another government (Italy) keen on saving a relative handful of high-profile unionized industrial jobs.
From Tom Dyson in The 12% Letter: On March 18, the Federal Reserve announced it would buy $300 billion "longer dated" Treasury bonds. This was the news the "long-bond bulls" had been waiting for. It meant the world's most powerful central bank was going to pump $300 billion into their market over the next six months...
The "long bond" is the nickname for the 30-year Treasury bond. It's the longest-dated debt the U.S. Treasury issues. Long-bond investors must have thought they were about to get rich... But the market didn't oblige. There were too many long-bond short sellers...
Coming in May
Harvey Rosenfield, President of the Consumer Education Foundation, contends that "Over the last decade, Wall Street (i.e. the entire financial sector consisting of commercial banks, accounting firms, insurance companies, securities firms including hedge funds and private equity firms) showered Washington with over $1.738 billion in supposed 'campaign contributions' and another $3.441 billion on 2,996 officially registered lobbyists (more than five for each Member of Congress) whose job it was to press for deregulation. In return for the investment of this $5.179 billion, the Money Industry was able to get rid of many of the reforms enacted after the Great Depression and to operate, for most of the last ten years, without any effective rules or restraints whatsoever."
“American Scientist” has a provocative article on peak oil and what that means for the chimera of unending economic growth. The authors remind us that population growth and increased food production have both literally been fuelled by ever more energy use, much of it wood or fossil fuel. This is not sustainable. The authors are Hail and Day, and here’s how “American Scientist” describes their thesis, “They have re-examined some of the data that led to the discrediting of the ‘limits to growth’ theory and have shown that both resource use and costs have only risen, and are no longer being mitigated by market forces. Although new sources of energy have been found, they are much more expensive to extract, a declining return on investment that Hall and Day think could lead to large societal problems in the near future.”
Let us remind ourselves that unlimited growth dogma went hand-in-hand with the manufacturing of phoney “wealth” by financial finagling in major investment centers around the world. There is NOT unlimited cheap energy nor is there creation of unlimited “wealth.” Duh.
If you have any info that would help, please contact me at my private email address: bailout@michaelmoore.com
